Asian stocks fall, yields rise as markets brace for aggressive Fed

Asian stocks fall, yields rise as markets brace for aggressive Fed

Visitors walk past the Japan Nikkei stock price quotation board inside a conference hall in Tokyo, Japan September 14, 2022. REUTERS/Issei Kato/File Photo

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TOKYO, Sept 21 (Reuters) – Stocks in Asia fell and bond yields rose on Wednesday as investors braced for another aggressive interest rate hike from the U.S. Federal Reserve later in the day.

The Japanese Nikkei (.N225) fell 1.26% and hit a two-week low. Australia’s benchmark stock index (.AXJO) fell 1.35% and South Korea’s Kospi (.KS11) fell 0.9%.

Chinese blue chips (.CSI300) fell 0.82%, while Hong Kong’s Hang Seng (.HSI) lost 1.26%.

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MSCI’s broadest Asia-Pacific equity index (.MIAP00000PUS) lost 1%.

This follows an overnight sell-off on Wall Street that sent the S&P 500 (.SPX) down 1.13%, although futures pointed to a slightly higher open on Wednesday.

The Fed headlines a week in which more than a dozen central banks announce policy decisions, including the Bank of Japan and the Bank of England on Thursday.

Sweden’s Riksbank surprised markets overnight with a full one percentage point hike and warned of more to come over the next six months. Read more

Despite this, bets on Fed tightening remained stable.

Markets are pricing in an 81% chance of another 75 basis point hike and see a 19% chance of a full 1 percentage point hike.

Global yields rose on expectations of further tightening.

The two-year US Treasury yield hit a nearly 15-year high of 3.992% on Tuesday and remained high at 3.9516% in Tokyo, while the 10-year Treasury yield hit its highest in more than two years. ‘a decade.

It hit 3.604% for the first time since April 2011, and was last at 3.5473%.

Australia’s benchmark 10-year yield hit a near three-month high of 3.789%, and South Korea’s equivalent yield hit its highest level since April 2012.

Markets are “apparently well positioned for a 75 basis point hike on a hawkish update” from the Fed, wrote Taylor Nugent, market economist at National Australia Bank in Sydney, in a client note.

“Post-meeting commentary and updated points will be critical,” Nugent said, adding that NAB was looking for a policy rate of “something like 4%” at the end of this year with no rate cuts scheduled until later. in 2024.

The U.S. dollar index, which measures the currency against six major peers, edged up to 110.22, returning to a 20-year high of 110.79 this month.

The greenback was little changed at 143.64 yen, having twice attempted 145 this month, a level last seen 24 years ago.

This week, the BOJ is expected to cement its position as the only dove among advanced-economy central banks by sticking to its ultra-loose policy that pegs the yield on Japanese 10-year government bonds at nearly 0%.

The Bank on Wednesday offered to buy 250 billion yen of bonds in an unscheduled operation to control yields.

The pound languished around $1.1372, remaining close to Friday’s 37-year low of $1.1351.

Markets are divided on whether the BOE will opt for a 50 or 75 basis point hike on Thursday.

Meanwhile, crude oil continued to slide amid concerns that aggressive tightening by the Fed and other central banks could dampen growth and dampen demand.

Brent crude futures fell 26 cents to $90.36 a barrel after falling $1.38 the day before.

U.S. West Texas Intermediate crude was at $83.74 a barrel, down 20 cents. The October delivery contract expired down $1.28 on Tuesday while the more active November contract lost $1.42.

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Reporting by Kevin Buckland; Editing by Ana Nicolaci da Costa

Our standards: The Thomson Reuters Trust Principles.

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